PRIVATISED Royal Mail reported a six per cent rise in annual profits despite fewer letters being sent and a worse than expected performance from its parcel business.

The postal firm saw a four per cent decline in addressed letters and growth of one per cent in its parcel business, amid threats from rivals including website Amazon.

Operating profit was up to £740 million for the year to March but, including pension accounting charges, the figure was actually £611 million.

Cost-cutting was largely behind the boost, as the company slashed the number of its UK workers by 5,500.

Overall revenue stayed flat at £7.76billion but the firm said its management reorganisation programme delivered cost benefits of £42 million.

It expects to deliver further savings of £80 million in the current financial year 2015/16.

Chief executive Moya Greeene, who oversaw Royal Mail's controversial stock market flotation in 2013, said it had been a challenging year: "The parcels and letters markets in the UK remain highly competitive."

The company's struggle is expected to continue as e-retailer Amazon rolls out its own delivery network, rather than using Royal Mail services.

Ms Greene said trading in the current financial year was in line with expectations but the real test is to be the crucial Christmas period.